Online Retirement Space's Newest Player: Goldman Sachs

The bank that for many defines ultrawealthy is now in the market to serve investors whose employers don't even offer 401(k)s.

Less than a year after announcing plans to offer retail lending to the mass-affluent, Goldman Sachs is entering the small- and medium-sized online retirement plan space through its acquisition of a one-year-old startup called Honest Dollar.

Goldman’s investment management division is buying the retirement savings platform to better serve individuals who either work for themselves or who work for companies that have traditionally been too small to offer workers a 401(k) or other workplace-sponsored retirement plan. The company estimates there are 45 million people in the U.S. who don’t have access to an employer-sponsored retirement plan.

“Honest Dollar has created a simple solution to a complex retirement savings problem,” Timothy J. O’Neill and Eric S. Lane, co-heads of Goldman’s investment management division, say in a statement. “Together, we have the potential to help millions of people achieve their investing goals.”

TWO PLANS

Honest Dollar offers employers two types of plans: a Basic Plan, which offers employees access to SIMPLE IRAs; or a Flexible Plan, which offers the same features but allows employers to define eligible employees for participation in an employer-sponsored SEP IRA. In addition, the self-employed can open a Roth IRA or SEP IRA. Based on questions regarding the types of investments they’re interested in, participants are funneled to either a Roth or a SEP IRA.

The Honest Dollar plans invest in four Vanguard ETFs: Vanguard Total Bond Market, Vanguard Total International Bond, Vanguard Total Stock Market and Vanguard Total International Stock. According to Honest Dollar’s website, the company plans to offer the ability to contribute to SIMPLE IRAs, which allow contributions up to $12,500 and would allow employers to match 2% to 3% in the future.

“We set out with a singular focus: to revolutionize the retirement industry and reach individuals who historically have been underserved,” William Hurley, CEO of Honest Dollar, says in a statement. “We look forward to being part of Goldman Sachs as we drive innovation across this space together.”

With the acquisition, Goldman will compete against companies such as Betterment, Ubiquity and Captain 401K. The Wall Street powerhouse also has interests in Kensho, a global analytics and knowledge platform for investment professionals, and Motif Investing, an online brokerage firm. The firm also is developing a new consumer lending unit that would compete with the likes of Prosper and the Lending Club.

Honest Dollar staff will remain in Austin, Texas, upon completion of the transaction, expected in the second quarter. Terms were not disclosed.